Greek Austerity is doomed to failure....

HAMISH_MCTAVISH

From a creditors' point of view, which the European Union authorities have apparently adopted, a country that has accumulated too much debt must be punished, so as not to encourage "bad behavior."

But punishing an entire country for the past mistakes of some of its leaders, while morally satisfying to some, is hardly the basis for sound policy.

There is also the idea that Greece — as well as Ireland, Spain and Portugal — can recover by means of an "internal devaluation."

This means increasing unemployment so much that wages fall enough to make the country more internationally competitive.

The social costs of such a move, however, are extremely high and it rarely if ever works.

Unemployment has doubled in Greece (to 14.7 percent), more than doubled in Spain (to 20.7 percent) and more than tripled in Ireland (to 14.7 percent). But recovery is still elusive.

You can be sure that the European authorities would offer Greece a better deal under a credible threat of leaving the euro zone. In fact, there are indications that they may have already moved in response to last week's threat.

But the bottom line is that Greece cannot afford to settle for any deal that does not allow it to grow and make its way out of the recession.

Loans that require what economists call "pro-cyclical" policies — cutting spending and raising taxes in the face of recession — should be off the table.

The attempt to shrink Greece's way out has failed.

If that's all that the European authorities have to offer, then it is time for Greece, and perhaps others, to say goodbye to the euro.

http://markganzersinsanityblog.blogspot.com/2011/05/527-shrinkage-and-austerity-have-failed.html

Austerity was never going to work. Not in Greece, not in Ireland, and not in any other country.

Growth is the only sustainable way out.....

Total_2

umm it has been passed, so has a good chance of working

HAMISH_MCTAVISH

It has zero chance of working.

Total_2

it has a 0 x 100% chance of working

ILW

Not including debt repayments, Greece still spends more than it takes in taxes and has been doing so for years. Unless they actually start collecting taxes they will get nowhere. Cannot see why they cannot get that into their heads.

Generali

HAMISH_MCTAVISH wrote: »

http://markganzersinsanityblog.blogspot.com/2011/05/527-shrinkage-and-austerity-have-failed.html

Austerity was never going to work. Not in Greece, not in Ireland, and not in any other country.

Growth is the only sustainable way out.....

I love how austerity for Greece is presented as a choice. The Greek Government can't continue to spend more than it takes in tax because people aren't prepared to lend to them any more except at a rate of interest that Greek taxpayers aren't willing to pay!

The idea that the Greek Government could just carry on is risible.

HAMISH_MCTAVISH

Generali wrote: »

I love how austerity for Greece is presented as a choice.

Punitive austerity is a choice, because the Greeks are accepting punitive interest rates on their debt.

The Greeks should present the EU with a choice of their own.

Refinance all our debt at competitive rates and provide fiscal stimulus to stimulate growth, or we default on all our debt and leave the Euro.

The current path is doomed to failure.*

About time the debtor nations grew a spine, and remind the creditor nations just how f*cked their own economies will be in the event of a full default.




*The reason it's doomed to failure is because the forced austerity and "risk premium" demanded by the bailouts and markets is a step too far. Yes, of course Greece needs to reduce spending and collect more taxes. But austerity to the point of economic destruction (as we're seeing in Greece) widens the gap between revenue and spending instead of narrowing it. And the "risk premium" demanded by the markets and banks only guarantees failure, and increases the risk of default.

The only way out is external assistance (including from their creditors) and stimulus to trigger growth, or default.

There are no other choices.

globalds

Total wrote: »

umm it has been passed, so has a good chance of working

umm I could write you out a cheque for a million pounds..Doesn't mean you can cash it.

michaels

I think there may be a maths problem as well in that austerity is likely to result in a fall in real incomes (suppose to become more efficeitnt they lay of the least effeceint 10% of workers and only lose 5% of GDP) that fall in GDP pushes up the debt to gdp ratio even as it improves the income to expediture ratio and is there any certainty that the negative impact of the former effect will be outweighed by the positive impact of the later?

Greece is not illiquid; ie it is not broke as a result of interest rates being too high, it is broke because there is no equilibrium interest rate in which it can conceivably meet its debt interest and repayment burden - even if it could borrow at 3% there would still be no real prospect of the debt ever being paid off.

The aftermath must feature an examination of why the Greeks ever managed to borrow so much - was there an expectation that all euro debt would become 'european debt'? Consiparcy theorists might say that it was allowed to happen to bring abotu a situation where there was no option but a fiscally harmonised federal Europe?!

neverdespairgirl

HAMISH_MCTAVISH wrote: »

Refinance all our debt at competitive rates and provide fiscal stimulus to stimulate growth, or we default on all our debt and leave the Euro.

The current path is doomed to failure.*

The other EU countries are just managing to stump up the amounts they are at the moment. I can't see Germans etc living with lower rates being charged.

HAMISH_MCTAVISH

neverdespairgirl wrote: »

The other EU countries are just managing to stump up the amounts they are at the moment. I can't see Germans etc living with lower rates being charged.

Then the Germans etc should prepare for their banks to become insolvent as Greece defaults and triggers a contagion that spreads throughout the Eurozone.

When externally enforced austerity and punitive interest rates drive an economy into the ground, as is happening with Greece, it's time for the creditor nations to start worrying about the return of their capital rather than the return on their capital. Only then will they learn the lesson that growth is the only solution, and you can't cut your way out of a recession.